Dispatches from the space race

Grant Shapps … the most clueless housing minister ever?

Have been struggling to get to grips with the government’s housing policy and am none the wiser after listening to Grant Shapps’ incoherent witterings on the Today programme yesterday (interview starts at 2:11)

Shapps says he wants house price stability rather than double-digit boom – stability by his definition being, for example, property prices rising by 2% pa, while earnings increased by 4% – meaning a real-terms drop over time.

Grant Shapps (centre)

But when he was pressed by Evan Davis on his willingness to call for cheaper house prices, he kicked for touch by talking about a long-term process of easing (let’s not frighten the punters!):

“Actually over the long term – and I’m not talking about short-term house price falls – it would perhaps be desirable if house prices didn’t do very much at all because that would allow average earnings to catch up and allow for housing to become a more affordable commodity.

“If that was to happen for 10-20 years … If stability really became a hallmark of the housing market, then just as your fridge and your car and so many other things have become more affordable compared with your total income over a period of time, so with homes.”

There are all sorts of problems with this, not least of which is that a house is not a fridge or a car – you can’t out-source production to China and then ship the product to a location where demand is high: demand for housing is highest in the south-east, where land supply is limited, and building is strictly controlled by planning laws, so it’s a pretty dumb analogy.

It’s also dubious to suggest gradual falls over time would be a benefit because lenders are likely to become much more stringent and demand more equity up front in such a market (as they are doing now).

So Shapps’ basic analysis is questionable.

Shapps’ policies …

But what of his policies? Davis pointed out that his stable market could only be achieved if the government was willing to call time on a boom (it will be interesting to see if Shapps changes his tune when prices start to climb again) by raising rates or making mortgages more difficult to acquire.

Shapps agreed but could see where this was going (minister promises to end housing boom and bust!) and insisted he actually doesn’t really believe the government can control the market, though, no, hang on, there are ways, err, to “have an impact”:

“It would be foolish to go as far as to say that you can simply end the boom and bust in these things – you can’t – but there are policies which have an impact and they include things like the housing supply, the way that mortgages operate … there are a bunch of things that government can do.”

What sort of things? Well, you don’t need to be a genius to understand that there are two ways to control house prices: boost supply and restrict demand via tax, access to mortgages, and interest rates.

If Shapps really wants to achieve this (and I very much suspect he’s making the best of the current bad house price situation) he has a funny way of going about it.

On the supply side, builders are still furious that the government has dismantled central planning and left house-building decisions to local councils, these councils being supposedly incentivised with cash payments for building to face down the nimbys.

On the demand side, tax (capital gains on main homes for example) is simply not on the Tory agenda. And mortgages? Shapps is opposed to the FSA’s proposed tightening of lending because it will stop people buying now … though presumably tighter lending would stop a future boom.

So in summary: Shapps wants what he views as a more rational market (was ever a market rational?!) in the future, but not right now thanks, or any time soon, because frustrated buyers vote, homeowners vote, and home ownership is a sacred conservative cow (this is why Shapps is not keen on supporting the rental market, though countries with more stable housing markets have a strong rental sector).

It’s by no means easy to square the housing market circle (New Labour didn’t succeed either) but Shapps, I have to say, really doesn’t seem to understand what he’s talking about at all.

4 Responses

I saw this guy at the regeneration conference in the summer. What a political pygmy. He wasnt helped by the fact he followed on from Hesseltine who, like him or loathe him, is a proper political big beast!

Just so … sounds terrified on the Today interview….like a lot of gov MPs he’s got the face for TV and is good at the sound-bites but he really hasn’t mastered the housing brief at all … Gov policy is riddled with contradictions, not least of which is that they can’t decide whether to have a policy (bit Soviet!) or not.